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July 27, 2012

Criminal Probes Start in LIBOR Scandal

The LIBOR scandal churned on; criminal probes were finally launched by the U.K.’s Serious Fraud Office (SFO) while in the U.S., the Justice Department prepared to file charges. Barclays apologized for its part in the rate-rigging scandal, even as it posted profits that beat analysts’ estimates. And Lloyds Banking Group was drawn deeper into the scandal, with parts of the lender receiving subpoenas in the investigation.

Bloomberg reported Friday that the SFO at last swung into action after being told it would be given a budget to pursue the matter, which has stretched from London across the globe. Until politicians called for a criminal probe in the matter, the SFO had declined to become involved, despite information from the Financial Services Authority (FSA) and from U.S. agencies.

A person familiar with the case said that although the SFO had the information from the U.S. late in 2011, the agency expressed no interest in the matter. However, in April it got a new director, David Green, and now it seems that things are on the move.

“Now the priority is to come to an assessment whether the available offenses are there for us to prosecute in a criminal court,” David Jones, a spokesman for the SFO, said in the report. If “the answer to that is yes we can, then we start going hell for leather and putting together a formal investigation team.”

Andrew Haynes, a law professor at the University of Wolverhampton in England, summed it up in the report as “partly the difference in culture.” He added, “In America, economic crime is something that’s regarded as desperately serious. In this country it is regarded as a problem, but there’s sometimes a slothful response.”

Meanwhile, in the U.S., the spread of the probe has altered the timeline of charges pending. Originally scheduled to be brought as soon as Sept. 3, Labor Day, now it appears that they will be held until October. It was reported that the U.S. plans to file charges against individuals that focus on allegations of rate fixing activities that are more extensive than the actions that were the subject of the Barclays settlement in June.

Barclays offered an apology for its part in the scandal in a statement that came as the bank posted first-half profits beating analysts’ estimates. In the statement, Chairman Marcus Agius said in part, “We are sorry for what has happened. However, our leadership continues to focus on the delivery of our financial performance targets.”

According to the statement, the bank’s pretax profits, excluding one-time charges, increased 13% to 4.23 billion pounds ($6.6 billion). In a Bloomberg analyst survey, profits were expected to come in at a median estimate of 3.9 billion pounds.

Distancing itself from the scandal could be difficult, since the bank also revealed that it is the target of additional class-action suits in the U.S. focused on LIBOR rigging.

It also acknowledged Friday that the FSA is investigating four current and former senior employees, including Finance Director Chris Lucas, over disclosure of fees related to fundraising efforts by the bank in 2008, when it raised 7 billion pounds from investors that included Abu Dhabi and Qatar sovereign wealth funds as it managed to avoid a full government bailout.

Agius was quoted saying that Lucas has the “full confidence” of Barclays’ board, and refused any additional comment on the investigation.

Lloyds acknowledged Thursday in a Reuters report that it has received subpoenas from government agencies looking into its role in the rigging of LIBOR. However, Antonio Horta-Osorio, the bank’s chief executive, said Lloyds had already done an internal investigation into its LIBOR practices and, while earlier in the year it had suspended two derivatives traders, no one has lost his job over LIBOR.

He added that the bank could not release its findings until after regulators had finished their own investigations. But he said he expects that the situation will become "clearer" over the next six months.

Finance Director George Culmer said in the report that the bank was not putting aside any funds to cover potential payouts over its part in the scandal. He was quoted saying, "We are still part of an ongoing investigation and until the regulator is satisfied that that investigation is complete, there is no point at this stage in thinking about or putting down a number."